by Anuja Selvakumar
The pre-Christmas season is indicated by hordes of Americans rushing to toy stores, hoping to fulfill the materialistic desires of their children. They whip out their wallets and toss cash in a hurry onto “Toys ‘R’ Us” and “GameStop” counters, ensuring that they get their hands on the infamous Transformers Movie, Voyager Starscream figure, and Guitar Hero video game. These parents have succeeded in being seen as superheroes through their little ones’ eyes.
This past holiday season, however, American stores were also full of shoppers from across the pond: Europeans. More specifically, the United Kingdom. These individuals braved a long and uncomfortable flight to take advantage of the declining dollar effect, since U.S. prices have decreased dramatically in relation to the strength of their currencies. Even with the price of the plane tickets to cover, it was evidently still cheaper for the Europeans to do their shopping in America. The dollar was once the gold standard of currency and the ultimate symbol of wealth. It was what the British used to buy oil from the Saudis and what India used to buy wheat from China. Before September 11, the price of gold was $250 for every ounce and has now, just over six years later, reached over $700 an ounce.
But as the dollar grows weaker, countries may very well begin to replace it with the euro for trading purposes. The dollar fell drastically against many other currencies around the world and hit a 28% drop between 2002-2004. One of the main causes of the declining value of the dollar is the Federal Reserve’s decision to lower interest rates in America. It is no longer profitable for other nations to trade with the United States. The euro is worth more than the dollar, at $1.41, but not quite so much as the pound at $1.97. Trading something as strong as the pound can cause several problems if its value continues to rise. The United Kingdom may be forced to initiate artificial inflation, since British goods will be extremely expensive. The British, in essence, have the opposite problem as the Americans do.
This leads to many corporate dilemmas as well for the Americans. European companies are now buying many American companies since they are quite cheap for them. Lufthansa, a premier German airline, bought huge shares in JetBlue Airlines. Ford is dramatically declining to the point that they must sell off their brands. Prodrive, a British vehicle manufacturer, scooped up Aston Martin; Tata Motors in India plans to buy out Jaguar and Land Rover.
Many European countries buy goods from the United States because it is cheaper, and of course, do not want Americans to buy from them since a profit is no longer in store. But in any case, their goods are far too expensive for Americans to purchase in this situation.
In order to counter this problem, the Federal Reserve plans to increase the interest rates in America. The declining dollar is also negatively impacting companies abroad because when countries export their goods to America, they will not receive as high a profit for those items because they will be worth much less in America than they would be in the exporting nations. If the value of the dollar does not trend upward, the standard of living in America will decrease and colossal trade deficits are predicted in the years to come. However, European nations are gradually achieving greater price stability since the American goods they are importing prove to be rather cheap for them.
The disappointment for one nation’s economy is clearly the treasure and happiness for the others.